Identification of the Equilibrium Exchange Rate Pass-Through Effect in Cointegrated VAR with an Application to the Euro area
The exchange rate pass-through is of considerable importance for policy makers in open economies. Based on work of Johansen (2002) this paper develops the conditions for the identification of equilibrium pass-througheffect in cointegration framework. In addition, I specify the restrictions for testi...
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| Format: | Article |
| Language: | English |
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University of Ljubljana
2017-03-01
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| Series: | Economic and Business Review |
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| Online Access: | http://www.ebrjournal.net/ojs/index.php/ebr/article/view/402/pdf_68 |
| Summary: | The exchange rate pass-through is of considerable importance for policy makers in open economies. Based on work of Johansen (2002) this paper develops the conditions for the identification of equilibrium pass-througheffect in cointegration framework. In addition, I specify the restrictions for testing the perfect equilibrium pass-through. The method is illustrated on the Euro area data and the pass-through effect of the Euro effective exchange rate. The results show that conditional on the type of economic shocks that lead to a permanent change in the exchange rate, the equilibrium pass-through effect can be both very low and high. |
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| ISSN: | 1580-0466 2335-4216 |